After doing these courses, I feel confident creating professional visualizations and dashboards
Shoebur RahmanProcurement Specialist, Giz Bangladesh
Course Description
After this course on quantitative finance with R, you will be able to use R to develop a model to value a fixed interest rate bond, estimate and analyze a bond's yield (i.e., a measure of the opportunity cost of bond investors), and model techniques used to protect bond portfolios from changes in interest rates. Why value bonds? Bonds are securities issued by governments or corporations that pay interest over a fixed schedule and are the most well-known type of fixed income securities. The US fixed income market is 1.5x larger than the US stock market, but, unlike stocks, most fixed income instruments, including bonds, trade very infrequently. Consequently, a bond's price may be a less reliable indicator of its value and analytical techniques are necessary when analyzing and valuing bonds.
Prerequisites
Curriculum
Course outline
1
Introduction and Plain Vanilla Bond Valuation
The fixed income market is large and filled with complex instruments. In this course, we focus on plain vanilla bonds to build solid fundamentals you will need to tackle more complex fixed income instruments. In this chapter, we demonstrate the mechanics of valuing bonds by focusing on an annual coupon, fixed rate, fixed maturity, and option-free bond.
- Introduction50 XP
- Price vs. value50 XP
- Time value of money50 XP
- Computing a bond's future value100 XP
- Computing a bond's present value100 XP
- Bond valuation50 XP
- Laying out the bond's cash flows100 XP
- Discounting bond cash flows with a known yield100 XP
- Convert your code into a function50 XP
- Convert your code into a bond valuation function100 XP
2
Yield to Maturity
Estimating Yield To Maturity - The YTM measures the expected return to bond investors if they hold the bond until maturity. This number summarizes the compensation investors demand for the risk they are bearing by investing in a particular bond. We will discuss how one can estimate YTM of a bond.
3
Duration and Convexity
Interest rate risk is the biggest risk that bond investors face. When interest rates rise, bond prices fall. Because of this, much attention is paid to how sensitive a particular bond's price is to changes in interest rates. In this chapter, we start the discussion with a simple measure of bond price volatility - the Price Value of a Basis Point. Then, we discuss duration and convexity, which are two common measures that are used to manage interest rate risk.
4
Comprehensive Example
We will put all of the techniques that the student has learned from Chapters One through Three into one comprehensive example. The student will be asked to value a bond by using the yield on a comparable bond and estimate the bond's duration and convexity.
R
Bond Valuation and Analysis in R
Course
Complete
